Shares of International Game Technology tumbled Friday after an analyst downgraded the stock, saying he sees potential challenges ahead for the world's largest slot-machine maker, particularly in its gambling operations business.
THE SPARK: Deutsche Bank Securities analyst Carlo Santarelli lowered his rating on IGT's stock to "Hold" from "Buy." The analyst noted that he sees the Las Vegas company as largely balanced in terms of risk-versus-reward for investors.
THE BIG PICTURE: The casino industry has been strengthening as the economy has recovered. In July, IGT reported sharply higher earnings for its fiscal third quarter, citing stronger revenue from North America product sales and social gambling.
THE ANALYSIS: In a client note published Friday, Santarelli said investors have already priced into the stock the expectation that the company will return more capital to shareholders.
He's concerned that industry fundamentals in the company's gambling operations segment could become more challenged. The analyst also expects continuing pressures on domestic operations yields.
Santarelli also said it is hard to imagine that IGT's fiscal 2014 earnings per share estimates will rise any further.
SHARE ACTION: Down $1.22, or 5.9 percent, to $19.45 in afternoon trading. The stock is up about 38 percent this year.